By: Mike Campbell
Data released for the US economy in October point to a higher than anticipated rise in producer prices. The seasonally adjusted rise of 1.8% was the largest rise seen in 3 months, according to the US Labor Department’s Producer Price Index. One major culprit was the price of petrol which has risen by 14% because of higher crude oil prices. Core US producer prices were also up by more than expected, rising by 0.5% rather than the anticipated 0.2%. These figures exclude the influence of food and energy costs due to their volatility. The data will feed into concerns about US inflationary pressure, but the US Federal Reserve has already publicly stated that interest rates, the main economic tool used to control inflation, will remain where they are for an extended period. The Fed has to try to balance the need to keep inflation under control whilst ensuring that the fledgling recovery is not stifled. For the time being, their priority must be shoring up the recovery.
UK Central Bank Keeps Interest Rates On Hold
As widely expected, the Bank of England has decided to leave the interest rate unchanged at 0.5% when it met yesterday. The rate has remained at this historic low level since March 2009. As recently as August 2008, the interest rate was ten times higher at 5%. Some financial analysts are predicting that the rate is unlikely to change until 2011. The bank also decided to make no alterations to the quantitative easing (QE) programme whereby the bank prints money which is used to purchase assets from banks and other companies. The current QE initiative is set to end in January. The bank believes that the UK recovery will be “slow and protracted” and that the benefits of QE will take time to emerge.